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Sometime before any RBNZ intervention in currency confirmed; NZDAUD continues to slide south

Currencies
Sometime before any RBNZ intervention in currency confirmed; NZDAUD continues to slide south

By Kymberly Martin

NZ Dollar

The NZD/USD traded a fairly tight range over the past 24-hours after the previous day’s sharp fall. It trades around 0.8330 currently.

There is increasing speculation over the presence of the RBNZ in the currency markets at the start of the week. However, we are unlikely to receive final confirmation until the release of the RBNZ’s August reserve statistics at the end-September. Some modest ‘passive’ intervention may be shown, and may indeed continue in coming weeks/months. 

However, we believe this will fall short of ‘active’ or noisy intervention, as seen in 2007, which would seem in consistent with the RBNZ’s broader monetary policy stance. This is still one of a tightening bias, as the OCR is seen some way below ‘neutral’ (circa 4.25%).

But after Monday’s lurch lower, the NZD/USD has traded a fairly steady path over the past 24-hours, between 0.8310 and 0.8350. It sits mid this range, at 0.8330, this morning.

The NZD/AUD has continued to slip. From above 0.8980 last evening it sits around 0.8950 at present, its lowest level since the start of November. The move was assisted by some compression of NZ-AU interest rate differentials yesterday. e.g. NZ-AU 2-year swap spreads have narrowed from 134bps to 131bps, the lower-end of their recent range.

However, we see this spread widening back toward 160bps by early next year, which should provide some medium-term support for the cross.

Today, only NZ food prices are scheduled for release domestically. Also look out for an expected announcement from Fonterra at some stage today.

There is every chance it may contain an update on the projected milk price. If so, we would not be surprised to see a number of $5.70, or lower. Technically there remains little support for the NZD/USD until a strong band at the 0.8200-8240 level. Resistance lies at 0.8410.

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Majors

The USD index continued to strengthen overnight. The CAD and AUD were the only currencies to outperform the USD over the past 24-hours.

Market sentiment was generally quite benign overnight, as the Presidents of Russia and Ukraine began talks in Belarus. Our global risk appetite index (scale 0-100%) sits at a fairly healthy 78%.

Equities posted another night of positive returns on either side of the Atlantic. The Euro Stoxx 50 closed up 1.0% and the S&P500 is currently up 0.2%.

The USD index has pushed up toward 82.60, its highest level since early-September last year. This move was likely supported by US data overnight. US consumer confidence rose in August (92.4 vs. 89.0 expected). US July durable goods orders leapt 22%m/m, although the data was distorted by a surge in aircraft orders in the month.

Meanwhile the EUR continued it journey south overnight. The promise of further ECB stimulus continues to weigh on the common currency as it moved toward its lowest level in almost a year. The EUR/USD sits just above 1.3170 at present.

Despite the broad USD strength the AUD managed to push higher overnight. Touching intra-night highs around 0.9330 it now sits at 0.9310. The AU data focus today will be the release of Q2 construction work done.

Our NAB colleagues expect a flat outcome. The drag from the downturn in mining investment should be offset by further gains in residential dwelling construction. Today, the China Westpac consumer sentiment index will also be released. Tonight, German consumer confidence is due for release along with US mortgage applications.

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Source: CoinDesk

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